DOL Forces Advisor to Pay for ERISA Violations

Johnston, IAThe US Department of Labor announced that its investigation into ERISA violations on the part of a financial advisor has resulted in the advisor restoring more than $300,000 to various ERISA plans. The investigation reportedly found that the advisor breached his duty to the ERISA benefits plans.

According to a news release from the Department of Labor (4/14/14), Donald Gene DeWaay Jr, an investment advisor based in Iowa, has paid $341,487 to 68 pension plans. He will pay an additional $212,727 over the next five years to other ERISA plans he managed. Investigators from the US Department of Labor’s Employee Benefits Security Administration found that DeWaay’s companies and employees charged clients higher fees than what clients had agreed to, and made recommendations to clients that resulted in DeWaay and his companies and employees being paid commissions from third parties.

The investigation found ERISA violations occurring from May 2007 to November 2011, in which DeWaay and his companies and employees recommended certain investments to ERISA-covered plans that were in violation of federal law.

Under ERISA law, advisors who receive payment for giving investment advice must act only in the best interest of plan participants. Advisors must also disclose all compensation and fees they receive related to their investment advice.

“By ignoring the best interests of those participants, the defendants in this case didn’t simply violate the law; they violated the faith of conscientious workers who trusted DeWaay and his employees to help them prepare for a secure retirement,” said Assistant Secretary of Labor for Employee Benefits Security Phyllis C. Borzi.

In addition to restoring more than $500,000 to the plans, DeWaay and his employees have agreed to disclose to ERISA clients whether they are acting as fiduciaries for those plans and any fees and compensation - in any form and from any source - that they receive related to their advice. Finally, under the settlement, they will not collect commissions from third parties and any commissions that are collected from third parties will be refunded to their clients.

According to Business Record (4/14/14), in 2013, DeWaay agreed to a $3 million settlement in lawsuits alleging that he and his employees promoted investments without performing proper due diligence. That settlement has been appealed.